Cashflow Archive - Incrementum

Dear Ladies and Gentlemen

I receive a fair number of messages asking about my view on the markets. As my regular readers all know, I still cannot foresee the future although I am trying hard but so far, I was totally unsuccessful.

However, if we take the core messages of my recent weekly mails about long-term investing into considerations and also what Mr. Andy Haeberli, Profond’s CIO, mentioned in last week’s interview, then – at least for me – there is not much room for investments outside the “real asset” bracket.

To make money with easy to understand, straight forward fixed income strategies seems difficult with current low interest rates. Either you accept elevated currency- or counterparty risks or you will not find decent yields on your fixed income investments. When it comes to real assets you may will have to accept higher volatility – as in equities and/or precious metals – but you get higher returns in the long run.

You may know, that we offer a cashflow based mandate for our private clients and while we cannot diversify those portfolio’s entire volatility away, we receive very decent cash returns on invested capital and interestingly enough, at least half of the companies whose equities we hold in those mandates, just announced dividend increases.

Now, Ladies and Gentlemen, what I want to say with this is, that if you are willing and capable of accepting volatility in your portfolio, you may appreciate rather stable cashflows on your invested capital and this should not to be neglected because the effect of compounding interests will help you to increase those cashflows even more (in theory exponentially) over time.

While I don’t know where markets or single investments are heading, I am confident that by following a strict investment process in seeking and harvesting positive cashflows, you may not get rich over night, but you will be able to steadily increase your capital over time.

There is no magic in this and crashes may occur at any moment. However most solid global companies keep paying stable dividends even during stock exchange crashes. This means if you do not have to sell a solid investment during a stock market crash and if you are patient enough to wait until stock markets recover, your loss potential is most probably going to be limited. However, it all comes down to picking the right stocks and this is hard work and involves a lot of research and number crunching.

As always, I encourage you to send me your feedback and/or questions but please don’t forget (instead of hitting the reply button) to send your messages to:
smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.
Kind regards,

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Dear Ladies and Gentlemen

Many thanks for your feedback to my last weekly mail. Some of my readers came up with great thoughts and I will most probably use one or the other in future weeklies. I would like to thank especially Madeleine, Thomas, Robert, Scott and Anton for their inspiring reflections. Many thanks!

As some of you know, I live on a small hill in the country side of Zürich and when I look out of the window, I see cows and horses and only a few houses. Seeing farmers at work is part of every day life up here and talking to them from time to time made me think about investment processes.

Nowadays, most of us living in developed countries are used to instant gratification. People are posting pictures of their food and hope to receive likes, they are posting pictures of their cars and hope to receive likes, they are posting comments on Twitter and hope to receive likes. Instant gratification. You want a coffee, you get it immediately, you want something to eat, you get it right away, a new I-phone you get it, whatever we want we can get most of it at any moment. Instant gratification.

However, when it comes to investing, instant gratification is not all that easy to achieve.

Investing needs a strategy and it needs time, patience.

I think investing is actually a lot like farming. Before investing my clients’ money, I have to prepare the grounds. Ground preparing in my business is for example research and research is very time consuming and at times even boring and it is ongoing, it never stops but it needs to be done.

After preparing the grounds I sow the seeds, which means I make some first investments. Afterwards I nourish and cater for the investments, I add positions or let go of some. When I think the time is right, I harvest, I take profits, rake in dividends or write calls (covered only) on long positions to increase to cashflow on the portfolio.

I am fully aware that a storm can take away a part of my clients’ harvest, this is why I am only on very, very rare occasions fully invested. Like this I always have some cash at hand to increase positions when markets are down.

That is what I am doing, not more and not less, and I keep on doing this over and over and over and over again.

And you know, Ladies and Gentlemen, I don’t think much of preparing and building up protection for this one and only very bad mega storm, almost hoping for it to arrive so that my protection works and (not to forget) my ego gets pampered. I think the opportunity cost of such a (rather risky) strategy is very high. Partial protection on the other side makes a lot of sense to me and I would highly recommend that in any sort of balanced portfolio.

Please do not hesitate to share your thoughts with me on whatever seems interesting to you or on whatever is bothering you. Please feel encouraged to do so but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.
Kind regards.

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Tag: Cashflow

What’s next?

What we can learn from farming